pick RPM International
The bottom line grew from $18.5 million last year to $52.9 million this time around. Wow, a 186% gain! Uh, not so fast. Last year's results were impaired by the disastrous hurricane season, which disrupted operations for this paint producer. Add that $10.2 million back to the fiscal 2006 numbers -- it seems like a fair adjustment, given the one-time nature of those disasters -- and the income growth drops to 84%. That's still pretty impressive.
After that, we get into murkier waters. The asbestos trouble at RPM isn't over yet, after all. That $300 million settlement last summer was but one of many legal proceedings. This quarter, RPM received $15 million in a settlement with an asbestos insurance carrier, while the year-ago period saw the company paying out $15 million in legal charges. Back all of that out if you want, and the final earnings growth figure stops at 12%, nestling at the top of management's earnings growth target for 2007.
Of course, that last adjustment is entirely optional. RPM carries a $391 million reserve fund for asbestos-related costs, an indication that management is planning for regular and largely predictable costs. To me, that makes it an ongoing cost of operations, not a one-time item, though your mileage may vary.
RPM continues to point to a weak consumer products segment holding back the results. CEO Frank Sullivan said that his company is sharing the "sluggish business climate being experienced by our major retail customers." Major resellers like Wal-Mart
Consumer products make up 35% of the company's sales today, and 34% of the operating profits. Sherwin-Williams
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Fool contributor Anders Bylund holds no position in any of the companies discussed here, though he's about to give Sherwin-Williams some business. You can check out Anders' holdings if you like, and Foolish disclosure looks great in Armadillo Yellow.